C The study of how people and businesses make investment decisions and how to finance those

1 Copyright © 2018 Pearson Education, Ltd.Financial Management: Principles & Applications, 13e, Global Edition (Titman) Chapter 1 Getting Started-Principles of Finance

1) Which of the following statements best represents what finance is about?

• How political, social, and economic forces affect corporations
• Maximizing profits
• The study of how people and businesses make investment decisions and how to finance those

decisions.

• Reducing risk

Answer: C

Diff: 1

AACSB: 6. Reflective thinking

Question Status: Previous edition

Objective: 1.1 Understand the importance of finance and identify the three primary business decisions that financial managers make.

Keywords: what is finance?

Principles: Principle 3: Cash flows are the source of value

2) From a financial point of view, a company that decides to develop new product is making

• a financing decision.
• an investment decision.
• a capital structure decision.
• a cash flow decision.

Answer: B

Diff: 1

AACSB: 6. Reflective thinking

Question Status: Previous edition

Objective: 1.1 Understand the importance of finance and identify the three primary business decisions that financial managers make.

Keywords: what is finance?

Principles: Principle 3: Cash flows are the source of value

3) Working capital management refers to

• long-term financing decisions.
• the management of cash flows.
• investing in product development.
• capital structure.

Answer: B

Diff: 2

AACSB: 7. Application of knowledge

Question Status: Previous edition

Objective: 1.1 Understand the importance of finance and identify the three primary business decisions that financial managers make.

Keywords: capital structure

Principles: Principle 3: Cash flows are the source of value (Financial Management Principles and Applications, 13e (Global Edition) Sheridan Titman, Arthur Keown, John Martin) (Test Bank all Chapters) 1 / 4

2 Copyright © 2018 Pearson Education, Ltd.4) Finance managers need to interact constantly with

• marketing managers.
• accounting staff.
• management information systems staff.
• all of the above.

Answer: D

Diff: 2

AACSB: 6. Reflective thinking

Question Status: Previous edition

Objective: 1.1 Understand the importance of finance and identify the three primary business decisions that financial managers make.

Keywords: what is finance?

Principles: Principle 3: Cash flows are the source of value

5) The personal decision to take a year off from work to obtain a graduate degree in business is primarily a(n)________ decision.

• social
• financial
• ethical
• investment

Answer: D

Diff: 2

AACSB: 6. Reflective thinking

Question Status: Revised

Objective: 1.1 Understand the importance of finance and identify the three primary business decisions that financial managers make.

Keywords: what is finance?

Principles: Principle 3: Cash flows are the source of value

6) The area of finance that deals with long-term investment decisions is known as

• capital structure.
• working capital management.
• financial strategy.
• capital budgeting.

Answer: D

Diff: 2

AACSB: 6. Reflective thinking

Question Status: Previous edition

Objective: 1.1 Understand the importance of finance and identify the three primary business decisions that financial managers make.

Keywords: what is finance?

Principles: Principle 3: Cash flows are the source of value

• / 4

3 Copyright © 2018 Pearson Education, Ltd.7) Capital structure refers to the financing of long-term investments.

Answer: TRUE

Diff: 1

AACSB: 6. Reflective thinking

Question Status: Previous edition

Objective: 1.1 Understand the importance of finance and identify the three primary business decisions that financial managers make.

Keywords: what is finance?

Principles: Principle 3: Cash flows are the source of value 8) Financial decisions can be difficult because the cost of investments can be estimated with greater confidence than future payoffs.

Answer: TRUE

Diff: 2

AACSB: 6. Reflective thinking

Question Status: Previous edition

Objective: 1.1 Understand the importance of finance and identify the three primary business decisions that financial managers make.

Keywords: what is finance?

Principles: Principle 3: Cash flows are the source of value

9) What are the three basic questions addressed by the study of investments?

Answer:

• What investments should the firm undertake?
• How should the firm fund these investments?
• How can the firm best manage cash flows in its day to day operations?

Diff: 2

AACSB: 6. Reflective thinking

Question Status: Previous edition

Objective: 1.1 Understand the importance of finance and identify the three primary business decisions that financial managers make.

Keywords: what is finance?

Principles: Principle 3: Cash flows are the source of value

10) Which of the following is NOT an advantage of the sole proprietorship?

• Limited liability
• No time limit imposed on its existence
• No legal requirements for starting the business
• None of the above

Answer: A

Diff: 2

AACSB: 6. Reflective thinking

Question Status: Previous edition

Objective: 1.2 Identify the differences between the three major legal forms of business.

Keywords: proprietorships

Principles: Principle 2: There Is a Risk-Return Tradeoff

• / 4

4 Copyright © 2018 Pearson Education, Ltd.11) What is the chief disadvantage of the sole proprietorship as a form of business organization when compared to the corporate form?

• Sole proprietorships are subject to double taxation of profits.
• The cost of formation.
• Inadequate profit sharing.
• Owners have unlimited liability.

Answer: D

Diff: 2

AACSB: 6. Reflective thinking

Question Status: Previous edition

Objective: 1.2 Identify the differences between the three major legal forms of business.

Keywords: proprietorships

Principles: Principle 2: There Is a Risk-Return Tradeoff 12) Which of the following is NOT true for limited partnerships?

• Only limited partners can manage the business.
• One general partner must exist who has unlimited liability.
• Only the name of general partners can appear in the name of the firm.
• Limited partners may sell their interest in the company.

Answer: A

Diff: 2

AACSB: 6. Reflective thinking

Question Status: Previous edition

Objective: 1.2 Identify the differences between the three major legal forms of business.

Keywords: partnerships

Principles: Principle 2: There Is a Risk-Return Tradeoff

13) The true owners of the corporation are the

• holders of debt issues of the firm.
• preferred stockholders.
• board of directors of the firm.
• common stockholders.

Answer: D

Diff: 1

AACSB: 6. Reflective thinking

Question Status: Previous edition

Objective: 1.2 Identify the differences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeoff

• / 4